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Strategic Partnering in
Supply Chain Management
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Points Illustrated in ADS Case
Pressure for VMI
Need for POS for VMI
Pressure for direct shipment (to retailers)
General increase in ADS shipping costs (no
coherent shipping strategy)
Future of audio duplication industry
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Ways to Implement Logistics
1. Internal activities
2. Acquisitions
3. Arms-length transactions (short-term and
most common)
4. Strategic alliance (long-term; focus of the
chapter)
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Which SA Approach is for You?
Consider the following points
Does the SA add value to products?
Does the SA improve your market access?
Does the SA strengthen your operations?
Does the SA enhance your technological strength?
Does the SA enhance your strategic growth?
Does the SA help build up your financial strength? Will the SA weaken you core competencies
(strengths)?
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Types of Strategic Alliances
1. Third-Party Logistics (3PL)
2. Retailer-Supplier Partnership (RSP)
3. Distribution Integration (DI)
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3PL Traditional outsourcing characteristics:
Transaction based relationships
Single-function providers
3PL Characteristics: Long-term relationships Multi-function providers
Mostly prevalent among large firms
Advantages and disadvantage of 3PL Allows firms to focus on their core competencies
Provides technological flexibility
Provides other flexibility
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Advantages & Disadvantages of 3PL
Advantages:
Allows firms to focus on their core competencies
Provides technological flexibility Provides other flexibility
Disadvantages:
Loss of control
Potential conflict with core competencies if logistics is
one of firms competencies
Potential new competitor
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3PL Selection Issues
Know your costs
Customer orientation of the 3PL (toward the
hiring firm). This is cited as the most
important factor
Specialization of the 3PL
Asset-Owning vs. Non-Asset Owning 3PL
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Important SP Issues Inventory ownership:
Supplier owns the goods until they are sold
Retailer owns the goods
Performance measures: Fill rate, inventory level,
inventory turns
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Important SP Issues
Confidentiality
Communication and cooperation When First Brands started partnering with Kmart,
Kmart often claimed that its supplier was not livingup to its agreement to keep two weeks of inventory
at all times. It turned out that this was due to thefact that the two companies employed differentforecasting methods.
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RSP Continuum
Refer to Page 137, Table 6.1
Quick Response VMIContinuous
Replenishment
Advanced
Continuous
Replenishment
Consignment Information
Sharing
Level of trust and cooperationLow High
Ownership of Inventory
Firm Supplier
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Main Characteristics of SP
CriteriaTypes DecisionMaker InventoryOwnership New SkillsEmployed by vendors
Quick
Response
Retailer Retailer Forecasting Skills
ContinuousReplenishme
nt
ContractuallyAgreed to Levels EitherParty Forecasting &Inventory Control
Advanced
Continuous
Replenishme
nt
Contractually
agreed to &
Continuously
Improved Levels
Either
Party
Forecasting &
Inventory Control
VMI Vendor Either
Party
Retail
Management
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Strategic Partnering
Quick Response: Vendors receive POS data from retailers,
and use this information to synchronize production and
inventory activities at the supplier. In this strategy, the
retailer still prepares individual orders, but the POS data isused by the supplier to improve forecasting and scheduling.
Milliken and Company: The lead time from order
receipt at Millikens textile plants to final clothing
receipt at several of the department stores involved wasreduced from eighteen weeks down to three weeks.
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Strategic Partnering
Continuous Replenishment: Vendors receive POS data
and use it prepare shipments at previously agreed upon
intervals to maintain agreed to levels of inventory.
Wal-Mart, Kmart
Advanced Continuous Replenishment: Suppliers may
gradually decrease inventory levels at the retailers store or
distribution center as long as service levels are met.
Inventory levels are thus continuously improved in a
structured way.
Kmart
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Strategic Partnering
Vendor Managed Inventory (VMI):JITD
VMI Projects at Dillard Department Stores, J.C.
Penney, and Wal-Mart have shown sales increases
of 20 to 25 percent, and 30 percent inventory
turnover improvements.
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Requirements of RSP
Advanced Information Technology (the
most important)
Top management commitment
Trust (Remember Barilla SPA)
Which is the easiest to acquire?
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Steps in RSP Implementation
Contractual agreement
Ownership
Credit terms
Ordering responsibilities
Other
Establish IT
Establish effective forecasting techniques Develop coordinating tools for managing
inventory and transportation
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Steps in SP Implementation
Contractual negotiations
Ownership
Credit terms
Ordering decisions
Performance measures
Develop or integrate information systems
Develop effective forecasting techniques
Develop a tactical decision support tool to assist incoordinating inventory management and transportation policies
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Advantages and Disadvantages of SP
Advantages
Fully utilize system knowledge
Consider the partnership between White-Hall
Robbins (W-R), who makes over-the-counter drugs
such as Advil, and Kmart. W-R initially disagreed
with Kmart about forecasts, and in this case, it
turned out that W-R forecasts were more accuratebecause they have a much more extensive
knowledge of their products than Kmart does.
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Advantages and Disadvantages of SP
Advantages (continued)
Decrease required inventory levels
Improve service levels
Decrease work duplication
Improve forecasts
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Advantages and Disadvantages of SP
Challenges:
Expensive advanced technology is required
Supplier/retailer trust must be developed.
Supplier responsibility increases.
Expenses at the supplier often increase.
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Examples of SP Successes and Failures
Western Publishing-Golden Books:
Western Publishing is using VMI for its Golden Books line ofchildrens books at several retailers.
POS data automatically triggers re-orders when inventory falls
below a reorder point. This inventory is delivered either to a distribution center, or in
many cases, directly to the store.
Ownership of the books shifts to the retailer once deliveries havebeen made.
In the case of Toys R Us, the company has even managed theentire book section for the retailer, including inventory fromsuppliers other than Western Publishing.
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Examples of SP Successes and Failures
VF Corporations Market Response System:
The VF Corporation, which has many well known brand names
(including Wrangler, Lee, Girbaud, and many others), began its
VMI program in 1989.
Currently, about 40 percent of its production is handled using some
type of automatic replenishment scheme.
This is particularly notable because the program encompasses 350
different retailers, 40,000 store locations, and more than 15 million
replenishment levels.
VFs program is considered one of the most successful in the
apparel industry.
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Examples of SP Successes and Failures
Spartan Stores
Spartan Stores, a grocery chain, shut down its VMIeffort about one year after its inception
One problem was that buyers were not spending anyless time on reorders than they did before
This was because they didnt trust the suppliersenough to be able to stop carefully monitoring theinventories and deliveries of the VMI items, andintervening at the slightest hint of trouble.
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Examples of SP Successes and Failures
Spartan Stores (continued)
Furthermore, the suppliers didnt do much to allay
these fears. The problems were not with the suppliers
forecasts; instead, they were due to the suppliersinability to deal with promotions, which are a key part
of the grocery business.
Since they were unable to appropriately account for
promotions, delivery levels were often unacceptably
low during these periods of peak demand.
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